Returns On Capital At Brilliant Earth Group (NASDAQ:BRLT) Have Hit The Brakes

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Brilliant Earth Group (NASDAQ:BRLT) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Brilliant Earth Group is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.093 = US$18m ÷ (US$262m - US$69m) (Based on the trailing twelve months to March 2023).

Thus, Brilliant Earth Group has an ROCE of 9.3%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 14%.

See our latest analysis for Brilliant Earth Group

Above you can see how the current ROCE for Brilliant Earth Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Brilliant Earth Group.

SWOT Analysis for Brilliant Earth Group

The Trend Of ROCE

In terms of Brilliant Earth Group's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 9.3% for the last three years, and the capital employed within the business has risen 555% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

On a side note, Brilliant Earth Group has done well to reduce current liabilities to 26% of total assets over the last three years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

In conclusion, Brilliant Earth Group has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 30% over the last year, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you're still interested in Brilliant Earth Group it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While Brilliant Earth Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.